2019 (12) TMI 972 - AT - Income Tax

Addition u/s 68 - Unsecured cash credit - HELD THAT - CIT(A) found a reconciliation of fund flow and thereafter observed that addition under section 68 was not required to be made in the hands of the assessee. CIT(A) has recorded a finding of fact that nothing has been retained by the assessee which has been considered as unexplained cash credit. The assessee has explained fund flow i.e. demonstrating transactions were back to back and were in the nature of accommodation entries. Characterization of income - CIT(A) has held that alleged 1, 57, 10, 000/- was not earned from any business activity but from other sources of income - Contrary to the above factual finding of the ld.CIT(A) neither Revenue has filed any evidence nor assessee has filed any paper book. It has not been brought to our notice as to how these analyses are contrary to the record. Therefore we are of the view that the ld.CIT(A) has made a lucid analysis of the record available before her and appreciated the controversy in right perspective. We do not find any merit in the ground of appeal raised by the Revenue challenging deletion of 9.33 crores as well as ground of appeal raised by the assessee pleading therein that the income of 1, 57, 10, 000/- ought to have been assessed as business income instead of income from other sources . Not to grant set off of unabsorbed depreciation and business loss from granite business under the head income from business - We do not find any merit in this ground of appeal because the ld.CIT(A) has rightly observed that the income of 1, 57, 10, 000/- is not a income from any regular source of business rather it is income from other sources and therefore it would not qualify for grant of set off. No details have been supplied by the assessee before us in this regard. Retaining income which was offered to tax by the appellant - CIT-A not restricting the same at loss from rotation of funds in the guise of software business by ignoring the principles of real income theory - HELD THAT - Since no explanation was furnished by the assessee regarding this entry the same was treated non-genuine and made addition to that extent and worked out a total addition of 20, 99, 934/-. However the ld.CIT(A) observed that since the assessee has already offered an income of 45, 53, 000/- in the books of accounts which is more than the addition worked out no separate addition was required. Accordingly the ld.CIT(A) restricted the addition to 45, 53, 00/- which was disclosed by the assessee in the return of income. To contradict finding of the ld.CIT(A) there is nothing placed before us by the assessee either in the form of explanation or in the form of paper book. Therefore we do not find any merit in the grounds of appeal of the assessee. It is rejected.

Summary

Issues Involved:
1. Deletion of addition under Section 68 of the Income Tax Act.
2. Confirmation of income under the head "income from other sources" instead of "business income."
3. Set off of unabsorbed depreciation and business loss.
4. Validity of notice issued under Section 148 and assessment under Section 147.
5. Disallowance of write-off of business advance.
6. Addition in respect of trade creditors under Section 68.
7. Disallowance under Section 40A(3).
8. Disallowance of software loss.

Issue-wise Analysis:

1. Deletion of Addition under Section 68 of the Income Tax Act:
The Revenue appealed against the deletion of ?9.33 crores added under Section 68 by the Assessing Officer (AO). The CIT(A) found that the transactions were back-to-back and merely accommodation entries, not involving any retention of funds by the assessee. The CIT(A) observed that the amounts were routed through various bank accounts and ultimately reconciled. Thus, the addition under Section 68 was deleted. The Tribunal upheld this finding, noting that the CIT(A) had made a detailed analysis of the fund flow and bank accounts, demonstrating that the transactions were not genuine business activities but accommodation entries.

2. Confirmation of Income under the Head "Income from Other Sources":
The assessee contested the confirmation of ?1,57,10,000/- as "income from other sources" instead of "business income." The CIT(A) held that this income was not from any regular business activity but from other sources, and thus, it should be assessed under the head "income from other sources." The Tribunal agreed with this finding, noting that the CIT(A) had correctly observed the nature of the income and its source.

3. Set Off of Unabsorbed Depreciation and Business Loss:
The assessee argued that the CIT(A) erred in not allowing the set-off of unabsorbed depreciation and business loss against the income from other sources. The CIT(A) held that since the income of ?1,57,10,000/- was not from any regular business activity, it would not qualify for set-off. The Tribunal upheld this decision, finding no merit in the assessee's argument.

4. Validity of Notice Issued under Section 148 and Assessment under Section 147:
For the assessment year 2002-03, the assessee challenged the validity of the notice issued under Section 148 and the assessment under Section 147. The CIT(A) held that the AO had properly assumed jurisdiction under Section 147. The Tribunal found no argument from the assessee on this issue and thus rejected the ground.

5. Disallowance of Write-off of Business Advance:
For the assessment year 2014-15, the assessee contested the disallowance of a write-off of ?32,000/- given in the course of business. The CIT(A) upheld the AO's disallowance, noting that the transactions related to software business were non-genuine and merely on paper. The Tribunal found no material to contradict this finding and upheld the disallowance.

6. Addition in Respect of Trade Creditors under Section 68:
The assessee also contested the addition of ?1,23,392/- in respect of trade creditors by invoking Section 68. The CIT(A) upheld the addition, observing that the transactions were non-genuine. The Tribunal found no material to contradict this finding and upheld the addition.

7. Disallowance under Section 40A(3):
The assessee contested the disallowance of ?83,250/- by invoking Section 40A(3). The CIT(A) upheld the disallowance, and the Tribunal found no material to contradict this finding, thus upholding the disallowance.

8. Disallowance of Software Loss:
The assessee contested the disallowance of software loss of ?2,33,85,000/-. The CIT(A) upheld the AO's disallowance, noting that the transactions were non-genuine and merely on paper. The Tribunal found no material to contradict this finding and upheld the disallowance.

Conclusion:
The Tribunal dismissed all appeals, upholding the findings of the CIT(A) on all issues. The Tribunal found that the CIT(A) had made a detailed and lucid analysis of the facts and evidence, and there was no material to contradict these findings. Thus, the additions and disallowances made by the AO, as modified by the CIT(A), were upheld.